UPA govt must end its policy of corporate welfarism

Never let a crisis go waste so goes the saying. The precipitous fall in the rupee which was followed by a steep decline in the GDP has created a crisis of sorts in our country.

With the government paralyzed, corporate India has seized this moment to take complete control of the budget and the economy. More worryingly for the people of India, the government has become totally impotent in the face of an onslaught by the corporates to garner ever more resources and benefits to fulfill its greed.

For the second successive year, budget estimates have gone haywire within two months of its presentation. Although the government is putting up a brave face, numbers prove otherwise. Both GDP and fiscal deficit estimates are fast unravelling with many economists lowering the GDP target and projecting a wider fiscal deficit.
While the RBI governor has stressed that some sacrifice of economic growth is a must to bring down inflation and ensure much needed relief to the aam aadmi, it is a major worry for corporate India. Along with higher input costs, they are unable to maintain margins and thus staring at lower profits. And this has led to a raid on government coffers by industry captains forcing the government to withdraw measures that otherwise would have raised revenues and closed the fiscal gap.
Moreover the industry now wants an ‘economic revival package’ that could have a debilitating effect on the budget as well as the aam aadmi.

India Inc has systematically pushed the finance ministry to kowtow to its wishes. First it was the rollback of the General Anti-Avoidance Rules (GAAR) which was meant to increase revenues. Scare-mongering by foreign investment banks and pressure from leaders of other countries successfully forced the ministry to blink first. Then the levy on gold and jewellery was withdrawn that was intended to reduce the import bill and thus to lower current account deficit. The real estate players successfully forced the abandoning of tax deduction at source (TDS), a measure that was introduced to reduce black money in the system. And while the people are being told that the fall in rupee will generally help exports and reduce current account deficit, the commerce ministry was busy handing out ‘sops’ to exporters that will likely have a negative impact on fiscal deficit.

A major economic problem facing the country today is agriculture growth and lack of job opportunities in rural areas. Corporate India never for once suggests hardcore agriculture reforms. Instead it is using the farmer and the fight against food inflation to force government to allow Foreign Direct Investment (FDI) in retail sector which unfortunately is geared towards corporate houses getting a foothold in agriculture sector than be of any assistance to small farmers and landless labourers.

Negative impact

With a penchant for foreign manufactured goods, the upper middle class and the elite who make brand conscious purchases are more likely to benefit from this measure than agriculture. Also in the short term this will have a negative impact on the current account deficit since retailers will be forced stack products manufactured abroad that will move out of the retail shelves at a faster pace.

Although two decades of liberalisation has been successful in creating new ventures and global icons in our country, to a large extent we have moved from red tape and bureaucratic nightmare to crony capitalism. Lack of accountability and ineffective scrutiny of the corporate sector has had a major impact on economic growth. Scams and private sector over-leveraging, not high interest rate or European crisis, have stifled the Indian economy. Corrupt elites not only want to control scarce natural resources like coal, iron ore or spectrum or land but also want a piece of the pie in subsidies while simultaneously demanding lower taxes. And to accomplish its mission, corporate India has played its role in the scams as well as in the creation of twin deficits. It must share equal responsibility for the policy paralysis and weak governance that prevails today.

Going forward, corporate India must change its behaviour. Reforms have largely benefitted urban conglomerates while rural India continues to suffer with no social welfare and limited infrastructure development. With more than 300 million below the official poverty line and another 500 million struggling to meet their daily needs, as a society we need subsidies till there is some form of social security to all citizens. Thus corporate India rather than acquiring assets through corrupt means should pay the market price, stop cartelising and foster ethical business practices.
Only such an action can move the country away from crony capitalism and more towards conventional capitalism while promoting inclusive economic growth.

Government too must change its policies. With its power to tax and redistribute, it should be a great leveller of society. Instead the United Progressive Alliance talks aam aadmi but delivers for corporate India. This behaviour and policies geared towards meeting corporate greed must change in the best interest of the country. The government can learn a few lessons from the Reserve Bank of India that has not bowed down and appeased corporate India’s clamour for an interest rate reduction.

(The writer is a finance analyst)